Federal Coronavirus Relief: CARES Act FAQ

The recovery rebates (Economic Impact Payments) are refundable tax credits. This means that the rebate decreases a taxpayer’s tax liability dollar-for-dollar, and the credit can be refunded to a taxpayer if they have no tax liability to offset.

The rebates are tax credits that will be applied to 2020 tax returns, but are advanced to taxpayers now based on their 2019 or 2018 adjusted gross income (AGI). The credit will be applied to 2020 tax returns using 2020’s AGI next spring, and taxpayers will receive the difference of the credit if it is in their favor.

For example, if a single taxpayer with no children made $200,000 in 2019, they would not receive an advance rebate based on their 2019 income. However, if they make $35,000 in 2020, they will receive a $1,200 refundable tax creditA refundable tax credit can be used to generate a federal tax refund larger than the amount of tax paid throughout the year. In other words, a refundable tax credit creates the possibility of a negative federal tax liability. An example of a refundable tax credit is the Earned Income Tax Credit (EITC). on their 2020 tax return. But in reverse, if a taxpayer had a $35,000 AGI in 2019 but has $200,000 AGI in 2020, they would receive a $1,200 rebate now and would not have to pay it back on their 2020 tax return.

Individuals with a Social Security Number (SSN) and who are not dependents may receive $1,200 (single filers and heads of household) or $2,400 (joint filers), with an additional rebate of $500 per qualifying child, if they have adjusted gross incomeFor individuals, gross income is the total of all income received from any source before taxes or deductions. It includes wages, salaries, tips, interest, dividends, capital gains, rental income, alimony, pensions, and other forms of income. For businesses, gross income (or gross profit) is the sum of total receipts or sales minus the cost of goods sold (COGS)—the direct costs of producing goods (AGI) under $75,000 (single), $150,000 (joint), or $112,500 (heads of household) using 2019 tax return information. (The IRS will use 2018 tax return information if the taxpayer has not yet filed for 2019.) The rebate phases out at $50 for every $1,000 of income earned above those thresholds. Use this calculator to determine your rebate using your AGI, number of dependents, and filing status.

For most Americans, no action is required. The IRS will use data from the most current tax returns or Social Security data to provide a rebate to Americans either via direct deposit (if such information is available) or through a paper check in the mail to the last address on file.

U.S. Treasury Secretary Steven Mnuchin said he hopes to distribute rebates to taxpayers who e-filed with direct deposit banking information in three weeks. Taxpayers receiving rebate checks may have to wait six to eight weeks to receive a paper check in the mail.

Treasury will be developing a web-based portal for individuals to provide their banking information to the IRS online. Taxpayers will be able to receive payments immediately as opposed to checks in the mail.

Yes. The IRS has recommended taxpayers to e-file as soon as possible if they think they will be owed a refund and has specifically advised taxpayers not to wait until July 15, the extended deadline from the usual April 15 date.

No. The recovery rebates are an additional refundable tax credit that will be applied to 2020 tax returns, but estimates are paid out to taxpayers based on 2019 or 2018 adjusted gross income (AGI). This is an additional credit for the taxpayer on top of whatever refund or tax is owed for the 2020 tax year.

For example, imagine a single taxpayer with no children who made $35,000 AGI in 2019. This taxpayer will receive a $1,200 rebate now, and this rebate would also show up in the taxpayer’s 2020 tax return as a tax credit already received. If the taxpayer would be receiving a $500 tax refundA tax refund is a reimbursement to taxpayers who have overpaid their taxes, often due to having employers withhold too much from paychecks. The U.S. Treasury estimates that nearly three-fourths of taxpayers are over-withheld, resulting in a tax refund for millions. Overpaying taxes can be viewed as an interest-free loan to the government. On the other hand, approximately one-fifth of taxpayers u based on their income tax withholdingWithholding is the income an employer takes out of an employee’s paycheck and remits to the federal, state, and/or local government. It is calculated based on the amount of income earned, the taxpayer’s filing status, the number of allowances claimed, and any additional amount the employee requests., they would still receive that $500 refund when they file their 2020 tax return.

The IRS has stated that those who filed their taxes electronically and provided direct deposit information will get their money the fastest.

Treasury will be developing a web-based portal for individuals to provide their banking information to the IRS online. Taxpayers will be able to receive payments faster as opposed to waiting for checks in the mail.

No, even filers with $0 of income can file for the rebate. However, they must file a tax return to ensure the IRS can process the rebate. Additionally, they must have a Social Security Number and not be claimed as a dependent on another person’s return.

The CARES Act uses the Child Tax Credit (CTC) eligibility standards. All qualifying children who are under age 17 who have not provided for more than half of their own expenses and lived with the taxpayer for more than six months are eligible. This means that adult dependents, such as college students aged 17 and over, and elderly dependents do not qualify for the $500 rebate. Adult dependents do not qualify for their own rebate either.

The CARES Act does not provide a maximum number of children that can be claimed. However, for each dependent to qualify they must be claimed by the taxpayer on their tax return.

If a taxpayer has not already filed a 2019 return with the name and Social Security Number (SSN) of the eligible dependent being claimed, the filer will not receive credit for those dependents born after they filed their 2018 return. However, the taxpayer may claim a $500 credit for each eligible child on their 2020 return.

Only the parental taxpayer claiming the child as a dependent will receive the $500.

Treasury will use tax year 2019 returns if available. If a taxpayer has not filed for tax year 2019, Treasury can fall back on 2018 return information. For those relying on Social Security and Veterans benefits but who have not filed in 2019 or 2018, Treasury Secretary Steven Mnuchin announced that these beneficiaries will not have to submit a separate tax return to receive a rebate. The payment will be sent directly to their bank account associated with those benefits.  Other taxpayers who have not filed for the past two years should submit a tax return for 2018 or 2019 as soon as possible to receive their rebate.

Yes, the IRS will look at your 2018 tax return to check for rebate eligibility but has also advised all taxpayers expecting a refund to file their 2019 tax return as soon as possible. Social Security beneficiaries will still receive rebates even if they have not filed tax returns for 2018 or 2019; their rebates will be sent to the bank account associated with receiving benefits.

If a taxpayer’s high income in 2019 puts them above the threshold, they may be in the phaseout range and remain eligible for a partial refund. If their income is lower in 2020 when they file taxes, any remaining credit that they are eligible for will also be refunded or deducted from their tax liability when they file taxes for 2020.

There is no penalty for receiving a rebate based on a lower income on 2019 or 2018 tax returns. If a filer’s eligible rebate rises when using 2020 tax returns, that will be remedied on their 2020 return. If the filer is given too much, the IRS will not penalize them.

No. Like all refundable tax credits (e.g., Child Tax Credit, Earned Income Tax Credit (EITC)), any part of the rebate, even in excess, is not considered as part of taxable income.

Yes, if a taxpayer’s income drops in 2020, they will be eligible for any remaining rebate credit they were not able to claim using their 2019 or 2018 return.

No, if the amount of credit a taxpayer qualifies for in 2020 is less than it was based on their 2019 return, it does not have to be paid back and it is not considered taxable income.

Yes, all taxpayers are eligible for the rebate, including those receiving Social Security benefits, subject to the same eligibility rules as other taxpayers. Treasury Secretary Mnuchin announced that these beneficiaries will not have to submit a separate tax return to receive a rebate. The payment will be sent directly to their bank account associated with those benefits.

Yes, Social Security beneficiaries should receive their rebate through the bank account associated with receiving benefits.

Yes, taxpayers will qualify for the rebate as long as their Adjusted Gross Income is below the rebate thresholds depending on their filing status. If a taxpayer received Supplemental Security Income (SSI) but not Social Security benefits and did not file for taxes in 2018 or 2019, the IRS will automatically send the rebate through the way taxpayers normally receive their SSI benefits, such as direct deposit, Direct Express debit card, or by paper check.

Employers may claim a 50 percent tax credit on the wages paid to employees from March 13 to December 31, 2020, up to a maximum of $5,000 credit per employee (applied to $10,000 of employee wages).

To qualify, firms must be suspended due to government actions related to coronavirus or experience a 50 percent decline in gross receipts during a calendar quarter when compared to the same quarter in the previous year. For firms with 100 employees or more, the credit can only be applied to employees not able to do their duties due to a business suspension or a lack of business.

If a firm takes a loan through the Paycheck Protection Program, it is not eligible to take the payroll tax credit on up to 50 percent of employee wages.

The Families First Coronavirus Response Act created tax credits on employer-side Social Security payroll taxes to offset paid family and sick leave related to the coronavirus.

This credit is different from and unrelated to the 50 percent refundable tax credit on employee wages that firms can receive. The refundable tax credit is not dependent on employees taking qualified sick or family leave and was created as part of the CARES Act.